Ladies and gentlemen, thank you for standing by, and welcome to Third Quarter 2020 Momo Incorporated Earnings Conference Call [Operator Instructions]. Please note, this conference is being recorded today. I would now like to turn the conference over to your to first speaker for today, Ms. Cathey Peng. Thank you.

Thank you, operator. Hello, everyone, and thank you for joining us today for Momo's Third Quarter 2020 Earnings Conference Call. The company's results were released earlier today and are available on the company's IR Web site. On the call today from Momo are Mr. Tang Yan, Executive Chairman of the Board; Mr. Wang Li, Chief Executive Officer of Momo. Mr. Wang Yu, Founder and Chief Executive Officer of Tantan; and Mr. Jonathan Zhang, Chief Financial Officer. They will discuss the company's business operations and highlights, as well as the financials and guidance. They will all be available to answer your questions during the Q&A session that follows. Before we begin, I would like to remind you that this call may contain forward-looking statements made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and current market and operating conditions and relate to the events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance or achievements to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties and factors is included in the company's filings with the US Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise, except as required under law. I will now pass the call over to Mr. Tang. I will translate for him. Mr. Tang, please.

Good morning and good evening, everyone. Thank you for joining our conference call today. As many of you know, I've already resigned as the Chief Executive Officer of the company and remain as the Executive Chairman of the Board. Going forward, unless I have anything special to say, I probably won't participate in regular earnings calls on quarterly basis. The job will be passed on to the long time [deputy], also the most trusted business partner of mine and now the new Chief Executive Officer of the company, Mr. Wang Li. Although, I'm no longer the CEO, I'm still going to be deeply involved in setting the strategic priorities and directing new product and business initiatives for the company that I built and still deeply committed to. As I'm not going to communicate with the investor community as often in the future as before, I would like to take this opportunity to share my views on what has taken Momo this far and where it is heading towards in the coming few years. Nine years ago, I started Momo with an idea to help people discover new relationships, expand their social connections and build meaningful interactions. This is a basic human demand that everybody needs regardless of geolocation and cultural background, but this is also something that we Chinese people particularly need because of the uniqueness we have here in China from economic, societal and cultural perspective. Today, in retrospect I'm glad to say that in so many different respects the mission has been accomplished. Every month, more than 100 million people are connecting, interacting and building romantic or otherwise meaningful relationships on our family of apps. At the same time, there has been and always will be opportunities for improvements in better satisfying user demand. That obviously is the ultimate driving force for the company to grow. If we can keep doing a better job in addressing the demand that we were not able to serve well in the past and at the same time, keep evolving ourselves as the users do we will grow. When the nearby people could not meet all the user demand that we saw, we brought them interest groups and nearby posts. When text and picture based information failed to satisfy all the user demand that we saw, we gave them live streaming, short videos, dinner party games and even virtual karaokes. When some people wanted a completely different social context and product mechanism, we added Tantan to our family of apps. This is how over the past nine years we transformed Momo from a simple, single function application to a multibillion dollar company. This relentless focus on innovation, encouraged to constantly reinvent and transform ourselves will continue to be the way we drive the company forward in the future. Thank you for trusting Momo team and for being part of the journey. Now let me hand the call over to our Chief Executive Officer, Wang Li. Mr. Wang, please?

Good morning and good evening, everyone. Thank you for joining our conference call today. This is my first earnings call as the Chief Executive Officer of the company. I'm going to spend the first part of my speech on reviewing the operational and business update. After that, I'd like to share some of the priorities that I set for my teams for the coming few quarters. Firstly a brief review of the financial performance. For the third quarter of 2020, total revenue was RMB3.77 billion, down 15% year-over-year. The year-over-year decrease was mainly due to structural reform that we are currently undertaking within Momo's core live video business as well as the fact that the financial condition of some of our high paying users deteriorated versus 2019 due to the lingering impact from COVID. Of course, the pressure from those two factors were partially offset by the robust growth from Tantan. Adjusted net income for the quarter was RMB654 million, representing a 17% profit margin. Excluding Tantan's net loss, adjusted income for the core Momo was RMB721 million or a 24% profit margin. In Q3, Tantan continued its strong momentum with total revenue reaching RMB729 million, up 135% on a year-over-year basis, driven by the growth momentum from its live streaming business as well as the gradual recovery of its membership business. Although, Tantan stepped up its marketing spending in Q3 to capitalize on the post-COVID recovery, the strong top line growth still enable us to narrow down the loss on the bottom line. Adjusted net loss from Tantan was 66.87 million for the quarter compared to RMB160 million for the year ago period and and 70.79 million from last quarter. Now a deeper dive into other aspects of the quarter. First, on operating metrics. Number of MAU grew 2.1…

Thanks. So, let me briefly review Tantan’s operational and business development in the past quarter and our next plan. First, on user trends and related metrics. Total paying users reached 4.1 million for the quarter, a 200,000 net addition from 3.9 million for the previous quarter. The increase in the number of paying users was a general reflection of the recovery in Tantan’s domestic video use and user engagements, partially offset by the introduction of SVIP, which is a new subscription package that was getting gradually rolled out in the middle of September. I’m going to elaborate a bit more about this new monetization endeavor and how the dynamics may impact short term and long term paying subscribers in different ways a bit later in my remarks. Without the launch of SVIP in mid-September, the number of paying users would have already exceeded Q1’s level. Now, I’d like to echo the early comments from Wang Li about some recent trends that we’ve been seeing in terms of user acquisition. Towards late August, we started seeing a significant increase in user acquisition costs, as a result of aggressive marketing spending from some of the education companies and mobile game publishers. As our marketing strategy focuses heavily on ROI, we prefer not to acquire users when it’s heavily overpriced, our current views that the user acquisition unit price might remain high in Q4. If that turns out to be the case, our short term strategy is to time the marketing campaigns opportunistically to avoid unreasonable increase in user acquisition costs. As a result of this short term strategy, we expect Q4’s marketing cost to see a meaningful decrease from Q3’s level. And to some extent, that could also affect the pace of sequential revenue growth in Q4. We believe the current high…

Thanks. Hi, everyone. Thank you for joining our conference call today. Let me briefly take you through the financial review. Total revenue for the third quarter 2020 was RMB3.77 billion, down 15% year-on-year or 3% quarter over quarter. Non-GAAP net income attributable to Momo was RMB653.8 million compared to RMB1.09 billion from the same period of 2019, or a 40% decrease year over year. As the revenue lines being covered comprehensively by Wang Li and Wang Yu earlier, let me just jump into the cost and expenses items directly. Our non-GAAP cost of revenue for the third quarter of 2020 was RMB2 billion compared to RMB2.18 billion for the same period last year. The non-GAAP cost of revenue as a percentage of total revenue was 53%, an increase from 49% from Q3 last year. Non-GAAP gross profit margin for the quarter was down 4 percentage points from a year ago. The decrease was attributable to the following four factors in order of magnitude of their respective impact. Number one, higher payout ratio from live streaming business due to the promotional events that we held to revise mid to long tail content ecosystem. The incentive program that we offered to golden broadcasters to stabilize our content supply, and higher revenue contribution from agencies represented broadcasters. Number two, higher payout ratio from VAS services due to the strong momentum coming from the audio and video social entertainment business, a big part of which big part of which involved third party professional moderators. Number three, lower gross margin from Tantan as its live broadcasting business is becoming increasingly sizable. And number four, certain fixed nature cost items such as headcount and depreciation of fixed assets related impacted the gross margin negatively as the total revenue declined and these items represent a higher percentage…

[Operator Instructions] With that, operator, ready for questions.

[Operator Instructions] First question comes from the line of from Thomas Chong of Jefferies.

I have two questions. My first question is about the update on ARPU recovery trend among the high paying users up to November, and how we should think about the initial revenue outlook in 2021? And my second question is on Tantan. Can management also comment about the live streaming revenue versus the membership trend in 2021? Thank you.

Let me translate the first part first. The structural reform that we are currently implementing within the live streaming business, at the very beginning, indeed, had some negative impact on the spending from the high paying users. We're hoping that by taking the short term pain, we could remove some of the bad stuff from the system that is going to be harmful for the content ecosystem over the long term. At the same time, gradually changing a very top heavy sort of model is also going to increase the safety level of our overall business structure in the new policy environment. And this is to make sure that Momo's live broadcasting business is going to grow healthily and steadily in the future several years. If you look at the data over the past several months, we can say with confidence that we are progressing very well in executing that goal. Because of management's commitment and the persistence from the team, we've successfully eradicated the bad apples from the system. And the other thing is that, if you look at the metrics reflecting the healthiness of the content ecosystem, things things things like DAU, their respective time spend and also their respective viewing time spend and also the total broadcasting time of the professional performers, as we entered into November, all of these metrics have been showing very positive trends. At the same time, so far, the team has largely completed the contract renewal process with the golden broadcasters with a pretty manageable incremental cost. We've successfully locked down the big, big majority of the broadcasters whose contracts are set to expire in the coming couple of years. And the renewed contracts are going to cover another at least three years. This is a very, very critical step in solidifying…

So regarding the revenue outlook, we haven't started projects and process for the period beyond Q4 yet, so it's too early to share anything too specific. But here are some of the drivers that we're looking at. First of all, the users are going to continue to grow versus this year and that will translate into paying user growth. We do not guide on user and paying user growth. But I'm confident that it will be meaningful against this year as COVID is behind and with the efforts in improving product and marketing efficiency. Second, next year on the VAS side, we're going to continue to optimize SVIP. Currently, we also have a few other membership features that we are testing and targeted to launch next year. One thing about next year is that we are looking to build a new monetization feature around video dating experiences and that we're just currently testing. The new monetization will be a la carte model. So if we're successful, we can be a meaningful ARPU driver as well. Thirdly, on live streaming. In the second half of this year, we largely focused on improving the product experience. Currently, I feel that we still have a lot of areas that need to be improved. For example, the recommendation engine, the in-channel experience and the way live video is connected to core products. So we've been pulling back on the ARPPU driven efforts since September. As we improve the overall user experience with live video, we're certain going to pull some of the revenue levers next year. So overall, I think both paying users and ARPPU pool people will see very meaningful growth in 2021. Thank you.

Operator, please get to the next.

Next question is from the line of Tian Hou of TH Capital.

So lots of guys compare Momo with Match Group or Tinder. However, if we look at how they grow during the COVID, it seems like there is a big diversion. So I wonder, in China, in the Chinese culture environment, what is the best way to grow dating and social networking business and what is the ceiling, how big the market can be? Also, what's the company's strategy for next five to 10 years? Are you guys going to continue to operate in the dating market, or are you going to bring the live broadcasting to the new area such as e-commerce, like a lot of other like broadcasting vendors are doing? Also related to the next several years strategy, you guys have a lot of net cash. How are you going to give cash to advance your strategy? Thank you. That's all my question.

First of all, we believe there are still huge growth potential in China's open social space and the general dating market. According to some official statistics that I've seen, in China, we have from 200 million to 300 million single adult population. Right now, we are also seeing some new rising trends. For example, the late time for marriage, the rising divorce rates and also the fact that the younger generation are becoming increasingly receptive for the idea of online dating. And we are also actually seeing increasing dependence on the online dating services. All of these will lead to a continuous expansion in our addressable market. With the current status of China's economic development and the overall consumption power of China's mobile Internet population, I think open social business and the dating business should have huge potential for monetization and profitability. Momo and Tantan, we are offering in that open social space with different but very complementary positioning. So we are all going to be benefiting from that growing market demand. Other than Momo and Tantan, we are also actively pursuing the growth opportunities via new applications in the social and entertainment space. Momo's team has proven capabilities in product innovation. So overall, I'm extremely confident in the long term growth potential for such product portfolio approach. More specifically about the growth outlook for the Momo application, I think through how quickly the traffic of Momo recover from the COVID, we can actually see that the fundamentals of the social platform is, they are very solid. But at the same time, Momo is also longstanding and relatively mature social brand. So when we talk about user growth, we need to seek growth opportunities and try to build growth on top of pretty stable user base. At this point, we…

Okay. It seems like this call has overrun pretty significantly. Operator in the interest of time, I think this is going to be the end of this conference call. Thank you guys for participating and thank you for the interest in Momo and Tantan. We'll see you next quarter. Thank you.

Thank you. Ladies and gentlemen, that concludes the conference for today. Thank you for participating. You may all disconnect.